There’s a new way to get a loan and it’s so much better than the old way.
New lending startup Earnest began when Louis Beryl, now the CEO, applied for a loan to attend graduate school. But Beryl was surprised when the interest rates he was offered were in the teens – extremely high.
“At the time, I felt like an incredibly financially responsible person — I had great work experience at reputable companies, a great education, paid all of my credit cards in full and on time, and had saved substantially towards my retirement,” Beryl told Opportunity Lives. “Yet I was being denied access to reasonably priced financing options to pursue a graduate education.”
For fiscally responsible borrowers, thought Beryl, there has to be a better way.
Earnest tries to rethink the way that lenders evaluate their potential clients, relying on much more than a simple (and often misleading) credit score. “Our core differentiator across the board is that we’re using much more comprehensive data to underwriting everyone,” Alan Cooper, Earnest’s head of communications, told Opportunity Lives.
When you apply for a loan, Earnest doesn’t just want your credit score and cash flows – it also uses data from LinkedIn, your credit cards, and your education and employment history, among many other sources. Using algorithms and machine learning, Earnest can often give borrowers a much lower interest rate while minimizing the risk to the company.
So far, the approach has been very successful, with Earnest lending between two and five million dollars per day, according to Cooper. Many people use Earnest for personal loans, perhaps to renovate a room in their house or to jump-start a new project. Personal loans help people to be more responsible, said Cooper, because they have a set amount to spend rather than a revolving credit line.
But Earnest has also gained a strong following among student loan borrowers. The easy-to-use interface and helpful customer service appeal to millennials (95% of Earnest’s clients are under 35), and the low interest rates make the refinancing decision a no-brainer. Earnest does all of its loan servicing in-house and maintains a “client happiness team” in order to make sure borrowers can easily understand how much left they have to pay.
This allows Earnest to offer more personalized, targeted interaction with each client. For example, if a client has a sudden unforeseen expense, Earnest will allow the deferral of one month’s loan payment per year (the deferred payment will be spread among the rest of the payments). This kind of customer service is completely new to an industry commonly known as confusing and unresponsive.
Additionally, Earnest’s “precision pricing” capability allows clients to set a budget and decide how much they’ll be able to pay each month. Earnest then offers a custom term for the loan, rather than locking people into generic 10 or 15-year terms.
Understandably, a prime concern with accessing so much data is ensuring proper security protocols. Earnest is very open about this issue and has put into place a full suite of security protocols, including multi-factor authentication and constant monitoring and verification by trusted third parties.
Earnest’s innovative business model is shaking up the typically stagnant market for personal and student loans. “The demand is something that we’ve had to very quickly accommodate in order to scale the business,” said Cooper. Since the beginning of this year, Earnest has grown from 30 employees to 160, raising tens of millions in funding along the way.
With lower interest rates and a modern interface, Earnest is a great option for students or other personal borrowers.